Financial Readiness and FICO Scores

On our “Heroes at Home Financial Event Tour” in FY15, one of our most loved segments was given by Gerri Detweiller, who wrote the original book on personal Credit. The Department of Defense realizes that financial readiness impacts military readiness. In fact, credit scores (or Fair Isaac Credit Score) follow you from assignment to assignment and don’t just determine if you qualify for an auto or mortgage loan. Your credit score also can also be an indicator of whether you are allowed to stay in the military or whether you are kindly asked to leave. It’s not so much the score itself, but what the score represents—your credit worthiness. If you have too much debt, then you cannot get the security clearances necessary to do your job and this can follow you into the civilian world as well. Even utility companies check these and decide whether you have to pay a deposit based on the score.

According to recent figures provided by FICO, 25.5% of consumers (nearly 43.4 million) now have a credit score of 599 or less, marking them as bad risks for lenders (see the chart). It makes it is unlikely that this group of people will get credit cards, auto loans or mortgages under the tighter lending standards that banks now use.

These credit ratings can also make the difference between whether you are accepted or rejected for a new insurance policy or as a renter and much more. That’s why it’s important to know your number. Furthermore, some employers check these scores, which could be the determining factor in whether you get that new job at the next assignment.

Summary: Why do I need a good FICO score?

A good credit score is invaluable to everyone. Here are the benefits of a good score in a nutshell:

Security Clearances — If you are having financial problems, as indicated by a FICO score, then you are a security risk and cannot be allowed to work in certain areas requiring a security clearance.

Loans – A good credit score helps you qualify for loans and get faster loan approval.

Interest Rates – Your FICO score oftentimes is the determining factor when it comes time to be assigned an interest rate. A better rating can help you get a better mortgage rate and could even make the difference between becoming a homeowner versus a continued renter.

0% APR – Have you ever been tempted by the advertisement on a new car, furniture or a new credit card that offers a special “0% APR”? No wonder so many people get in line for these special deals. Few people realize that these kinds of special offers only go to those who have the top levels in the national distribution of FICO scores. If a good credit score holder acquires too many of these kinds of loans, they’ll deteriorate their score. So reserve these for long term loans such as a new automobile.

So Close and Yet so Far – Sometimes the difference between qualifying for a great deal and not qualifying for it can be as close as twenty points on your FICO score. You may say: “So what? I don’t qualify for it, I can still qualify for a fairly low interest rate.” But it adds up and matters a great deal. The difference on a $20K car loan at a 0% APR versus a 7% to 8% APR is around $1800 over the course of the loan.

Job Applications– There are jobs that require high security clearances and government positions that can be impacted by your score as well as employment in the financial sector.

Renting – Some people cannot rent a home or an apartment without a good credit score.

Utilities – You can often have your security deposit waived if you have a good FICO.

Insurance Rates – It could also affect what kind of an insurance premium you will pay. Some auto insurers are using credit data to help determine insurance rates. In fact, ninety-two of the 100 largest personal auto insurance companies in the country use credit data in underwriting new business, according to a study by Conning & Co.

Improve FICO Scores in Three Easy Steps:

Pay credit bills a day early rather than a day late – Set this up online using automatic pay so that you’ll never be late again.

Pay attention to proportionality — Keep your charges at 50% or less of the available credit, even if you pay off the card at the end of each month. This means that if you have a $5,000 credit limit, you should never charge more than $2500.

Pay at least $5 more than the minimum each month – It will show up on your report as paying down your debt which will make your credit score go up!

For a copy of your FICO score, go to Credit.com and for a free copy of your credit report go to Annual Credit Report and for more help go to your local Airman and Family Readiness Center (or the equivalent in your branch of the service). You can improve your FICO, pay down debt and get fiscally healthy so that you can find the financial freedom that is worth fighting for!

About elliek

Ellie Kay is the best-selling author of fifteen books and a frequent media guest on CNBC, ABC’s Nightline, MSNBC, Neil Cavuto and Fox News. Ellie is also a gifted keynote speaker, presenting to standing ovation crowds of over 8,000 people.